Buying a franchise: align your premises lease with your franchise agreement

The right premises can make or break a franchise business, yet the lease is easily overshadowed by the franchise agreement. Joining a franchise network does not, in itself, secure your right to occupy the premises or release you from lease liabilities when the relationship ends. Before buying, check that your business can use the premises for as long as it needs them, and that the terms of the lease, franchise agreement and any business acquisition work together.

1. Establish who leases the premises and on what basis

Start by asking to see the current lease, including all schedules and amendments. Find out whether your company will rent directly from the property owner or whether the franchisor will sublet the premises to your company. In the latter case, your company’s right to occupy may also depend on the franchisor’s head lease.

The franchisor’s approval of the premises is not the same as the landlord’s consent to the proposed use. Check that the permitted use under the lease matches the franchise concept. For example, a production kitchen, a customer service point and a retail-only shop may each require different features. Also record who is responsible for checking suitability and carrying out any necessary alterations.

If you are buying the business and assets of an existing franchise, do not assume that the lease will transfer simply because you have signed the sale agreement. Finland’s Act on Commercial Leases contains a provision on transferring lease rights when a business is transferred, but its application depends on the contractual terms and the circumstances. Have the transfer procedure checked and obtain the landlord’s written consent where necessary.

In a share purchase, the tenant company remains the same. Even so, the lease may require notification or consent when ownership changes. Check this separately, even if the seller assures you that all agreements will continue unchanged.

2. Put both agreements on a single timeline

Map out the start and end dates, renewal options and notice deadlines for both the lease and the franchise agreement on one timeline. Add the handover of the premises, refurbishment, the franchisor’s approval inspection and the planned opening. This will help you spot whether rent becomes payable before the business can start trading.

A particularly difficult situation arises when a fixed-term lease runs significantly longer than the franchise agreement. Your company may lose the right to use the franchise concept but still have to pay for premises where starting a different business would be difficult. The reverse mismatch is also a risk: the franchise agreement may require you to keep trading after your right to occupy the premises has ended.

Where possible, negotiate the following:

• Rent becomes payable only once the premises have been handed over in the agreed condition.
• The lease renewal option aligns with renewal of the franchise agreement.
• Any right to terminate or transfer the lease when the franchise relationship ends is expressly agreed.
• Any right for the franchisor to take over the premises is linked to your written release from future lease liabilities.

These rights do not arise automatically. A franchisor’s promise to find a new franchisee does not bind an independent landlord. If the arrangement requires all three parties’ approval, bring those approvals together in a single set of written documents.

Also test the timeline against unexpected events: what happens if refurbishment is delayed or the franchisor does not approve the premises for opening? Establish who pays the rent during the delay and whether your company can withdraw from the arrangement. A target opening date alone does not settle these liabilities.

3. Calculate your total premises liabilities, not just the monthly rent

Ask for a breakdown of all charges associated with the lease. In addition to the base rent, you may have to pay maintenance, water, energy, waste disposal or communal area costs. Discuss the VAT treatment of the rent and your business’s entitlement to deduct VAT with your accountant.

Check the basis and timing of rent reviews, including any minimum increase. If the rent is partly turnover-based, establish exactly which sales count towards the calculation. For example, online orders fulfilled from the premises can create uncertainty unless their treatment is clearly defined.

Make a separate list of costs that arise only at the start or end of the lease: the rent deposit, alterations, technical assessments, fitting installation, signage removal and reinstatement of the premises. Ask your lender how the deposit and pre-opening expenses will be covered by the financing.

Document the allocation of responsibilities in a handover report, supported by photographs. The fit-out required by the franchisor does not, on its own, determine who owns fixed installations or pays for their removal. Nor does the landlord’s approval of refurbishment necessarily release you from an obligation to reinstate the premises.

4. Understand the legal framework and get the terms in writing

Finland has no separate franchise law, statutory franchise disclosure package or dedicated franchise register. Agreements are governed by general legislation, such as the Finnish Contracts Act. Commercial premises leases are governed by the Act on Commercial Leases. The Finnish Franchising Association’s Code of Ethics is a form of industry self-regulation, not legislation or a substitute for a lease.

Contractual terms carry considerable weight in commercial leasing. Do not assume that you can end a fixed-term lease by giving ordinary notice simply because the franchise relationship ends. Nor is the possibility of having an unreasonable term adjusted a guaranteed exit route.

Ask a lawyer to review the lease and franchise agreement together, rather than in isolation. In particular, ask whether a breach or termination of one agreement could affect the other, and who would remain liable for payments. Make sure any negotiated exceptions appear in the documents you sign.

Practical rule of thumb: do not commit to premises until you know when your right to occupy begins, the full cost of your liabilities and how you can be released from them when the franchise relationship ends.